Family businesses are amongst the most important driving forces behind the UK economy.
According to a recent survey family-run firms now account for about two thirds of the UK’s private businesses. Around four in ten private sector jobs are in family businesses.
But the process of passing on your business can be a difficult one. Family business succession is fraught with potential problems - and it requires significant forward planning.
Here are some simple tips to help you plan for successful family succession.
1. Don't make assumptions
It is very easy for business owners to assume that family members will share their vision for the future of the organisation. This is particularly common in businesses that have remained in the same family for many years. But you should remember that your intended successor may have entirely different plans for their life. Similarly, they may not have the necessary skills for the job – and this is a problem that a family bond cannot overcome.
2. Think ahead
Family business succession is not something that happens overnight, or even over a few months. Rather, it is a lengthy process that requires significant forethought. You should begin to think about family succession as soon as possible – and you should try to ensure that the rest of the business is aware of your plans from the earliest possible moment.
3. Make a plan
Don’t leave succession to chance. Instead, sit down at the earliest possible stage and put together a written plan to help guide you through the process. This plan should take in things like training, communication within your business, and financial considerations. Professional business succession advisors can help you formulate this.
4. Consider the alternatives
You should remain open-minded throughout the process. Remember that family succession is not the only potential option, and that you should consider other possible exit strategies. These might include a sale or a management buy-out.
5. Think about tax
Family business succession can have significant tax implications. It is important that you understand and consider these implications in advance. In particular you may need to look into entrepreneurs’ relief, Capital Gains Tax rules, and Inheritance Tax. You should seriously consider seeking professional advice to help you navigate the tax issues.
6. Communicate with staff…
Staff conflict is amongst the most common and most damaging problems associated with family business succession. At all points in the process you should ensure that your plans and decisions are properly communicated to other staff. This becomes doubly important when there are other individuals within the organisation who may potentially be expecting to take over the reins. It is imperative that you are not seen to have ‘parachuted’ a family member in over a better-qualified staff member.
7. …and other family members
Similarly, remember the importance of communication with the rest of your family. It is also important that other family members do not feel like they are being overlooked or otherwise badly treated in favour of your chosen successor. Sit down and discuss your plans with other family members, and try to understand everyone’s wishes. You might not be able to accommodate them all – but it is important that everyone feels that they are being listened to.
8. Explain your position
Finally, you need to be realistic about your future in the business. Many entrepreneurs find it difficult to entirely let go, and prefer to retain some position after they retire. This is fine – but you need to ensure that your successor understands the nature of your role in advance. By codifying your position at the earliest opportunity you can help to avoid potential conflicts later on.